Knowing what investment funds are available in the market and how they are classified can be interesting when making the decision to invest our money in a fund or several investment funds. With this idea in mind, we will be looking at the different types of investment funds that exist, which are their characteristics and which investor profile is the most appropriate to enter them. For this we are going to focus, mainly, on the investment vocation of the fund, that is, on what assets they invest. Let’s start:
Fixed Income Funds
Fixed Income funds are those that invest most of their assets in fixed income assets, the evolution of interest rates being the factor that will most influence the evolution of these funds. The shorter the maturity term of the assets in which the fund invests, the lower the risk and therefore the lower profitability. On the contrary, the longer term of the assets, the greater the associated risk and the greater potential profitability.
These funds are especially indicated for investors with a conservative profile, who are willing to obtain reduced returns in exchange for greater peace of mind, derived from the fact of assuming a lower risk.
Equity funds invest most of their assets in variable income assets (shares). Contrary to what happens with fixed income funds, equity funds offer higher potential returns, since the risk is also higher.
Subcategories are usually established within equity funds, depending on the market in which they invest (Spain, eurozone, USA …), depending on the sectors in which they invest (technological, financial …), or depending on other characteristics of the market. the values in which they invest (size of the company …).
Due to their characteristics, variable income funds are recommended to a determined investor profile, since they assume greater risks during the investment, which may lead to higher potential returns.
The Mixed-Income funds diversify the investment, investing part of their assets in fixed income assets and part in variable income. It is especially important to know these proportions since this will determine the risk associated with the fund and therefore the potential return.
Following the foregoing, the higher the percentage invested in fixed income, the lower the risk and the lower the potential return, while the higher the percentage invested in variable income, the greater the theoretical risk and the possible return that we take out of our money.
Mixed-Income funds are products intended for all types of investor profiles, from the most conservative to the most determined, depending on the percentage assigned to fixed and variable income.
These funds do not have a precise definition of their investment policy. Therefore, they do not fit into the categories mentioned above. These funds are free not to set in advance the percentages that invest in fixed income or variable income, the currency in which the assets in which they invest are denominated or the geographical distribution of the investment.
Because of all this, Global funds have associated high levels of risk.
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These funds ensure, at a certain date, the conservation of the capital invested initially. However, not all guarantee the obtaining of an additional profitability. There are two types of guaranteed funds:
- Guaranteed funds of fixed income. These funds guarantee the capital invested initially and usually also ensure a fixed return on the expiration date of the guarantee.
- Guaranteed equity funds. These funds guarantee the capital initially invested plus a return linked (totally or partially) to the evolution of shares, stock markets, indices, currencies or other investment funds. If the markets do not evolve as expected or if certain conditions set out in the fund prospectus are not met, the venturer will not obtain any additional returns.
In general, these funds usually require the client to keep their money invested for a long period of time.
The risk associated with this type of funds is quite small, which makes them suitable for investors with a conservative profile.
Distribution or Distribution Funds
These funds distribute dividends to their participants periodically (monthly, quarterly, semi-annually or annually). The amount of the same depends on the dividends distributed by the companies in which the investment fund invests. This, on the one hand, favors the investor’s liquidity and, on the other, makes him pay taxes on the dividends received.
These funds do not distribute dividends to their participants. The manager reinvests in the fund the dividends it receives from the companies in which it invests. This makes the net asset value of the fund grow progressively.
Other types of funds
There are other types of funds with peculiar characteristics, for example in terms of their legal form, liquidity, assets in which they invest or strategies they use. Among them, we find ETFs, Funds of Funds, Hedge Funds and Real Estate Investment Funds. Certain aspects of the general regulations are not applied to these funds.
It is important to know the investment policy of the fund since this will allow the investor to choose the fund that best suits their expectations, economic situation, and risk profile.